If you want a general explanation about REO properties please read the entire article provided in the link from Realtor.com.
I have listed 6 Key Points from the article.
1) Real estate owned properties, or REO properties, are houses that have been seized by banks or other lenders from people who are unable to pay their mortgages.
2) If a home doesn’t sell at (foreclosure) auction, it becomes an REO property.
3) Generally, lenders do not do any upgrades or repair work on REO properties, which are sold "as is."
4) As with any property, you might find a great deal, but don't expect REOs to be severely undervalued.
5) However, working with a real estate agent is an easier, and often more reliable, way to find REOs.
6) However, if your research reveals the house is overpriced, you might decide to offer below asking price and explain your reasoning in a cover letter.
The picture and key points came directly from the article.